Highest half-year private equity fund raising in 5 years

According to Preqin’s report, the private equity fundraising market has shown signs of improvement with the fundraising levels beginning to return to pre-crisis levels in terms of capital raised in the first half of this year.

For instance, during H1 2013, a total of 381 private equity funds reached a final close, raising an aggregate $218 billion. The report points out this is the highest half-year fundraising value for almost five years, when $299 billion was raised by funds closed in H2 2008.

Interestingly, the report points out the substantial amount of fundraising points to the success GPs have had in securing LP commitments and also the existence of healthy investor appetite.

Alignment of LP and GP’s interest

Preqin’s report notes the terms and conditions of a fund should produce an alignment of interests between the LP and the GP, by ensuring that an effective working relationship is developed between the two parties. The report points out that in a highly competitive fundraising market, it is imperative that GPs don’t adopt terms and conditions liable to put off investors from committing to private equity funds. The following graph illustrates the extent to which LPs believe that GP and LP interests are properly aligned:

GPs sharing the entirety of transaction fees

Preqin’s report points out that over the recent years, there has been a move towards GPs sharing the entirety of the transaction fees they collect. The report notes such a move is a sign of commitment to a balanced relationship between the fund managers and their investors, aligning with the key message of the ILPA Private Equity Principles. The following graph highlights the average share of transaction fees rebated to LPs:

Lower investment period for some fund types

According to the Preqin’s report, investment period seems to somewhat lower for some of the fund types such as distressed private equity and real estate, with mean investment periods of 3.75 years and 3.43 years respectively. The following graph captures the average duration of investment period by fund type:

Turning to governance, Preqin’s report points out that there is a general trend observed in the industry, whereby larger funds are more likely to have the more complicated keyman clauses.

Host of regulatory changes

According to Preqin’s report, the past year witnessed the announcement of a number of regulatory changes that will affect the private equity industry and the players in it, particularly in North America and Europe. For instance, the AIFMD, Solvency II, Basel III and Volcker Rule will have a significant impact on the private equity industry in the future. The investors to whom Preqin has spoken to have highlighted these regulations as the most prominent challenge they face when seeking to operate an effective private equity program.